NOTE 9 - STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 9 – STOCK-BASED COMPENSATION

Stock Option Plans

At September 30, 2012, the Company had two shareholder approved stock-based compensation plans: the 1998 Employee Stock Incentive Plan and the 2008 Stock Incentive Plan. A total of 480,050 shares were authorized under all plans at September 30, 2012. The plans do not provide for the settlement of awards in cash and new shares are issued upon exercise of the options. The North Valley Bancorp 1998 Employee Stock Incentive Plan provides for awards in the form of options (which may constitute incentive stock options (“ISOs”) or non-statutory stock options (“NSOs”) to key employees) and also provides for the award of shares of Common Stock to outside directors. As provided in the 1998 Employee Stock Incentive Plan, the authorization to award incentive stock options terminated on February 19, 2008. Pursuant to the 1998 Employee Stock Incentive Plan there were outstanding options to purchase 60,834 shares of Common Stock at September 30, 2012. The North Valley Bancorp 2008 Stock Incentive Plan was adopted by the Company’s Board of Directors on February 27, 2008, effective that date, and was approved by the Company’s shareholders at the annual meeting, May 22, 2008. The terms of the 2008 Stock Incentive Plan are substantially the same as the North Valley Bancorp 1998 Employee Stock Incentive Plan. The 2008 Stock Incentive Plan provides for the grant to key employees of stock options, which may consist of NSOs and ISOs. Under the 2008 Stock Incentive Plan, options may not be granted at a price less than the fair market value at the date of the grant. Under all plans, options may be exercised over a ten year term. The vesting period is generally four years; however the vesting period can be modified at the discretion of the Company’s Board of Directors, and for all options granted after the fourth quarter in 2008 the vesting period is five years. The 2008 Stock Incentive Plan also provides for the grant to outside directors, and to consultants and advisers to the Company, of stock options, all of which must be NSOs. The shares of Common Stock reserved for issuance under the 2008 Stock Incentive Plan consisted of 189,330 shares to be issued upon the exercise of options granted and still outstanding as of September 30, 2012 and 219,821 shares reserved for future stock option grants and director stock awards at September 30, 2012. Effective January 1, 2009, and on each January 1 thereafter for the remaining term of the 2008 Stock Incentive Plan, the aggregate number of shares of Common Stock which are reserved for issuance pursuant to options granted under the terms of the 2008 Stock Incentive Plan are increased by a number of shares of Common Stock equal to 2% of the total number of the shares of Common Stock of the Company outstanding at the end of the most recently concluded calendar year. Any shares of Common Stock that have been reserved but not issued as options during any calendar year shall remain available for grant during any subsequent calendar year. Each outside director of the Company is eligible to receive a stock award of 180 shares of Common Stock as part of his or her annual retainer paid by the Company for his or her services as a director. Each stock award is fully vested when granted to the outside director. On July 26, 2012, the Board of Directors approved the 180 share stock award to each of the eight outside directors (total 1,440 shares) for the year 2012. The Company recognized director stock grant expense in the amount of $19,000 for the quarter ending September 30, 2012, relative to these 1,440 shares awarded to the eight outside directors. The number of shares of Common Stock available as stock awards to outside directors shall equal the number of shares of Common Stock to be awarded to such outside directors. Outstanding options under the plans are exercisable until their expiration.

Stock-based Compensation

There were no options granted for the three month period ended September 30, 2012. There were 65,000 options granted in the three month period ended September 30, 2011. There were 77,908 and 66,000, respectively, options granted for the nine month periods ended September 30, 2012 and 2011. For the three month periods ended September 30, 2012 and 2011, the compensation cost recognized for share based compensation was $69,000 and $45,000, respectively.  For the nine month periods ended September 30, 2012 and 2011, the compensation cost recognized for share based compensation was $158,000 and $105,000, respectively.  At September 30, 2012, the total unrecognized compensation cost related to stock-based awards granted to employees under the Company’s stock option plans was $770,000. This cost is expected to be amortized on a straight-line basis over a weighted average period of approximately 4 years and will be adjusted for subsequent changes in estimated forfeitures. The weighted average grant date fair value of options granted for the nine month period ended September 30, 2012 was $6.28 based on the following assumptions used in a Black-Scholes Merton model. The weighted average grant date fair value of options granted for the three and nine month periods ended September 30, 2011 was $6.09 and $6.07 based on the following assumptions used in a Black-Scholes Merton model.

	For nine months ended
	September 30, 2012
Weighted average grant date fair value per share of options granted	$	6.28
Significant weighted average assumptions used in calculating fair value:
Expected term		6.49 years
Expected annual volatility		58.5	%
Expected annual dividend yield		N/A
Risk-free interest rate		1.40	%

	For three months ended			For nine months ended
	September 30, 2011			September 30, 2011
Weighted average grant date fair value per share of options granted	$	6.09		$	6.07
Significant weighted average assumptions used in calculating fair value:
Expected term		7.67 years			7.67 years
Expected annual volatility		53.6	%		53.6	%
Expected annual dividend yield		N/A			N/A
Risk-free interest rate		2.26	%		2.27	%

A summary of outstanding stock options follows:

						Weighted
				Weighted		Average
				Average		Remaining		Exercise		Aggregate
				Exercise		Contractual		Price		Intrinsic
	Shares			Price		Term		Range		Value ($000)
Outstanding at January 1, 2012		184,070		$	38.55		7 years		$8.99-$103.10	$	212
Granted		77,908		$	11.13				$9.97-$12.53	$	192
Exercised		—			—
Expired or Forfeited		(11,814	)	$	47.42				$8.99-$103.10	$	5
Outstanding at September 30, 2012		250,164		$	29.59		7 years		$9.97-$103.10	$	399
Fully vested and exercisable at September 30, 2012		101,799		$	54.61		5 years		$10.40-$103.10	$	41
Options expected to vest		148,365		$	12.42		9 years		$9.97-$23.95	$	358

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock as of September 30, 2012. There were no options exercised during the nine month periods ended September 30, 2012 and 2011.